Tie Funding to Graduation Rates

One of the biggest challenges states face is producing a workforce qualified to meet the needs of employers in today’s economy. In order to increase degree attainment and begin to close the skills gap that exists between workforce supply and industry demand, states should change the way they fund higher education.

States have traditionally funded their public institutions of higher education based on enrollments. This means the more students attending an institution, the more money that institution receives from the state. While this may incentivize colleges to expand access, it does nothing to incentivize efficiency and productivity. Institutions are rewarded for admitting more students and keeping them enrolled as long as possible, not for ensuring that every student is making progress toward a degree and ultimately leaving with a credential that has value in the labor market.

Instead of funding public colleges and universities based on enrollments, states should use a formula that pays institutions for success in key areas like progress toward and completion of degrees and credentials. That’s what we’re doing in Tennessee.

In 2010, our state adopted a new model—one that funds institutions based on outcomes. While we continue to build on our efforts to raise educational attainment levels in Tennessee and make sure our workforce is prepared for a dynamic economy, other states are following suit and implementing performance-based funding models within their higher education systems. Although Tennessee remains the only state to have a 100 percent outcomes-based model, four other states now determine institutions’ base funding through an outcomes-centered approach. Several other states either have in place or are transitioning to some type of performance funding.

Although some in higher education may oppose tying funding to outcomes, we are already seeing this model changing the way our postsecondary institutions do business, and we know our workforce will be the beneficiary.

Protect Innovation From the Fiscal Cliff

All of this, and the cost each year of the federal investment for university and other basic research, its primary source of funding, is less than 2 percent of the budget. But even that small investment is threatened by the budget stalemate in Washington.

Our research universities are still indisputably the world’s best, and America remains the unquestioned global leader in the creation of ideas and inventions, and in technology. Other nations, however, particularly China and India, are pouring resources into new, American-style universities. They seek to imitate our success, and they are beginning to do so at a fastclip.

For us to maintain the best research universities in the world, we need to sustain the nation’s investments in research and higher education. But our states are disinvesting in public universities. And at the national level, the federal government is about to commit an utterly foolish act—mindless across-the-board budget cuts, scheduled for Jan. 2, 2013, that will directly affect our nation’s innovative capacity. According to the Information Technology & Innovation Foundation, a non-partisan tech-policy think tank, these cuts would reduce research funding by so much that the resulting loss of innovation is projected to lower GDP by hundreds of billions of dollars over the next decade.

Only Congress and the President can stop this from happening. Washington clearly needs to cut deficits and stabilize the national debt, but as former Lockheed Martin CEO Norman Augustine has said, when you need to trim weight from an airplane, you don’t remove the engines. Cutting funding for research universities will do little to balance the budget in the short term and will be calamitous over the long haul.

Our competitors are thinking long-term, and so must we. If we act wisely, our universities can continue to produce the great discoveries and innovation that will help America lead the world into the future as it has led in the past.

America’s system of higher education has always been one of shared responsibility: students, families, states, and the federal government all taking part in funding a college education. Unfortunately, we are witnessing a realignment of each partner’s share of the costs of college. States are contributing less while students and their families are shouldering a heavier burden, financed largely through federally backed loans. Student debt has surpassed credit card debt in the U.S. and reached the $1 trillion mark, a nearly 50% increase from four years ago. As I discovered in my recent Senate Committee investigation, more than a quarter of federal financial aid goes to for-profit colleges, yet nearly 50 percent of these students drop out within four months—a development that calls for a closer look at the standards to which we hold schools that receive federal aid.

As we reauthorize the Higher Education Act in the next Congress, we must make college more affordable, but more importantly, we must empower students and families by making the process of selecting a college easier and more transparent—so students know exactly what expenses to expect. While many colleges are trying to keep costs down, many more are stuck in a “business as usual” mode, which is neither sustainable nor desirable.

Some colleges like my alma mater, Iowa State University, are investing in earlier and more effective counseling so that families can start planning from the first year of college and know their financing and repayment options. We must invest in work-study programs and help students, while they are still in school, with smart budgeting. Finally, we must expand the number of borrowers who are aware of the government’s income-based repayment plan, which lets many students cap their monthly payments at 10% or 15% of their discretionary income.

Education is the key to success in America. It is critical to a strong middle class and remains one of the best investments for both individuals and the nation. For America to remain competitive, we must tackle the college affordability crisis head on and ensure that student loan debt does not become the next housing bubble.

Harkin is a U.S. Senator from Iowa, and Chairman of the Health, Education, Labor and Pensions Committee.Do More For Adult Learners

There are 18 million undergraduates attending U.S. colleges and universities, but a surprisingly small portion of them fall into the category of “traditional” students: just 27 percent are fresh out of high school and studying full-time at a four-year school. Yet that’s where the national focus is, and that’s a problem. The vast majority of undergrads are older, taking longer to finish, working more and seeking credentials to help them get or retain a job. Many of them are juggling the very real demands of work and family and struggle to find the time and energy to devote to education.

By 2018, 63 percent of all jobs will require at least some postsecondary education, according to the Georgetown University Center on Education and the Workforce. This is why policy makers need to start focusing on adult education: some 34 million Americans started college but didn’t complete their degree. Another 62 million have a high school diploma but never went to college.

Already a number of promising practices are being undertaken by colleges, universities and other partners to help reduce the time and cost of postsecondary education. For instance, the University of Wisconsin is adopting a first-in-the-nation “Flexible Degree” geared to meet the needs of working or unemployed adults who want to earn a college diploma. More competency-based programs could help military veterans and displaced workers get their degrees faster. These and other adult learners should be able to earn credit for what they can show they already know.

Another potential solution are massive open online courses, or MOOCs, which harness the power of the Internet to provide students across the country and around the world with access to a high-quality education on their timetable.

The entire higher education community must come together to formulate a national adult-education agenda that is cohesive yet nimble enough to address the diverse needs of millions of adult learners, non-traditional students who have become the norm.

Keep Public Universities Public

As chancellor of a public university, I regularly meet with our students—it helps me understand the challenges they face and reminds me who I’m working for. One of those students, Eric Pedroza, will soon become first in his family to graduate college. His parents are supportive but can’t afford to help pay his tuition, so in addition to Pell grants and scholarships, last year Eric worked three jobs—in an office on campus, for the city where he grew up and in a local clothing store.

Twenty years ago, tuition at UCLA was $1,624; adjusted for inflation, that would be $2,564 in today’s dollars. This year tuition is $12,192. Why has the cost gone up so much? Because during Eric’s lifetime, California has slashed per-student funding 60 percent. Other states have made similar cuts. UCLA has responded by significantly cutting our expenditures and continuing to hunt for more savings. But beyond those, the only alternative to tuition hikes is to make courses larger and offer fewer of them—a combination that would likely result in delayed graduations and more restricted career opportunities. That’s why the cost to attend public universities keeps going up and why we risk failing the next generation by pricing them out of a quality education. Public universities were created to expand access to higher education, but funding cuts are driving tuition up to the level of private institutions.

We need to keep public universities public. Exactly 150 years ago, President Abraham Lincoln signed the Morrill Act, giving states federal resources that allowed them to build colleges. That bold federal action helped make our nation a superpower. Today, by contrast, state governments all across America are failing public universities. They’re making it harder for Eric and thousands like him to graduate college; to end cycles of poverty; to serve our communities to their fullest potential; to remain the land of opportunity and the envy of other nations.

That’s why, if the U.S. wants to remain a leader and keep the American Dream alive, higher education needs a strong financial commitment from our next President. We need an aggressive, comprehensive strategy for saving our public universities that involves the federal government and private industry, which for too long has relied upon universities, at little or no cost, to provide an educated workforce as well as innovative, university-generated products and ideas. The next President could seek financial support from private industry in the form of a tax. Or better yet, he could consider other ideas, like one circulated by my colleague at UC-Berkeley, Chancellor Robert Birgeneau, who has suggested using federal matching funds to enhance donations when those in the private sector do step up to support public research universities. Whether the next President uses a carrot or a stick, higher education is America’s future—and it’s time to make it a priority.

Community colleges are the least glitzy, most proudly diverse, and stubbornly egalitarian workhorses of American public higher education. With a modest average tuition of $2,963 per year, these two-year colleges quickly prepare students for careers (and often serve as a springboard for those seeking a degree at a four-year institution). According to a recent study by the American Association of Community Colleges, state and local governments get an estimated 16% return on investment for every $1 they spend on community colleges, along with the societal benefits of having a better educated, higher-earning workforce.

Already the institutions of choice for almost half of U.S. undergraduates, these schools provided an affordable lifeline to learning during the Great Recession, with enrollment at the nation’s more than 1,100 community colleges jumping almost 22% from 2007 to 2011. Yet the surge in demand has coincided with shrinking resources. Since the 2006 fiscal year, 43 states have decreased higher education appropriations per student, which is especially significant for community colleges since state support, combined with local taxes, represents more than half of these institutions’ revenues. In California, for instance, where 112 community colleges serve more than 2.6 million students, the budgets for these schools have been cut by 12% since 2009, and an estimated 200,000 students were crowded out of the system last year.

Yes, community colleges can operate more efficiently. They can no longer afford to offer boutique programs with limited demand or practicality, and they must ensure that the coursework they do offer readily transfers to four-year institutions and fully aligns with workplace needs. But this is also a question of resources, and in an era of tight government budgets, the private sector has to step up. While some corporations such as Siemens, Verizon, UPS, and Goldman Sachs are already working with community colleges to help bridge the skills gap, these partnerships have to increase in scale and scope. The stakes are high, but increased collaboration can help reduce income inequality, revive the middle class, and provide an economic engine for national recovery.

Something big is up in higher education thanks to the advent of “massive open online courses” (MOOCs) that can teach millions of students simultaneously around the world. This new way of teaching and learning, together with employers’ growing frustration with the skills of graduates, could usher in a parallel universe of credentialing that may compete with traditional college degrees within a decade. This new regime has the potential to create enormous opportunities for students, employers and “star” teachers even as it upends the cost structure and practices of traditional campuses.

The key question now is how quickly these MOOCs will offer not just a breakthrough mode of learning and attaining skills, but bona fide credentials that students seek because employers value them. Once a sufficient infrastructure of credible exams and assessments around MOOCs is in place—Colorado State University’s Global Campus has already started giving credit for Udacity’s introductory computer programming course if the student passes a proctored exam—we’ll enter a new era in which employers will be in a position to act like Colorado State is today. That is, they’ll have the confidence to give job candidates “credit” for work done and certifications given outside the officially “accredited” institutions of higher education.

Once this challenge to the predominance of today’s accrediting institutions begins, a big chunk of higher education may experience the kind of disruption the music industry experienced a decade ago. Substitute “degrees” for “albums” and “self-selected credentials that employers value” for “playlists,” and you’ll have a feel for what may lie ahead.

But unless traditional institutions can capture meaningful revenue streams from these new online platforms—be they via textbooks, tutoring, proctored exams, per-course and per-degree fees, or creative alternatives not yet imagined—the online model may prove self-defeating. Because it will always take big investments to attract and retain the talent needed to develop world-class courses and materials, whether online or on campus. There simply have to be incentives to create compelling content if schools are to deliver the best teaching to anyone on the planet. That’s why MIT’s new president, L. Rafeal Reif, suggested in the Wall Street Journal recently that online students should pay modest fees to help the physical university sustain its mission.

While no one can predict the future precisely, it seems possible the parallel universe is leading us towards two versions of hybrid learning experiences in higher ed. On the one hand, students from wealthier families and those with adequate financial aid may prefer a campus-centric, residential experience (and the lifelong personal networks that come with it). In this model, technology could allow a more efficient and effective re-engineering of the learning experience, with lectures becoming digital and class time reserved for small group problem-solving and conversation. On the other hand, the cost/value equation could shift so rapidly in the years ahead that millions of students may select digital-centric, lower-cost alternatives with a core online component supplemented by self-organized study groups. These students could flourish without ever setting foot on traditional campuses.

Undoubtedly, there will be some tumult as we navigate this new world. But if we get it right, the prize—in terms of broader access, improved employability and deeper learning—involves untold benefits for students, employers and society.

Dua is a senior partner at McKinsey & Company, where he leads the firm’s higher-education practice.

Make All Students Get Debt Counseling

Paying for college is one of the few major life expenses without standardized mandatory cost disclosures. Promotional material for a credit card has to include the Schumer Box, which clearly states the card’s annual percentage rate and other key fees and terms that used to get tucked into the small print; a new car has to display the Monroney window sticker, which details the vehicle’s fuel economy, crash test and emissions data and manufacturer’s suggested retail pricing, and a mortgage lender must provide a Good Faith Estimate and HUD-1 settlement statement that itemizes the closing costs and other fees and services associated with buying a house. College financial aid award letters, in contrast, often characterize loans as reducing college costs and do not clearly distinguish loans from grants, confusing families about the real bottom-line cost. Students often do not know how much debt and interest is accumulating during enrollment, nor do they realize how much they’ll have to pay per month after they graduate or how much they’ll pay over the life of their loans.

The federal government’s new “financial aid shopping sheet” will provide families with better college cost disclosures, but it must be made mandatory. Prospective students should be able to access information linking projections of likely debt levels, salaries and unemployment rates for their preferred colleges and academic majors before choosing where to enroll. The government recently started requiring for-profit colleges to disclose this information, but there’s no reason why public and non-profit colleges shouldn’t report this information as well.

But better disclosures are not enough. The timing of the disclosures also matters. For example, students who drop out of college are four times more likely to default on their student loans than students who graduate. Yet colleges wait until just before graduation to counsel students about their repayment options and the dire consequences of default. Many students don’t know when they enroll that it is almost impossible to discharge student loans in bankruptcy proceedings, that defaulting will ruin their credit scores and thus hurt their ability to get an auto loan, mortgage or even a credit card, and that their wages can be garnished and income tax refunds intercepted until they repay the loans.

Income-based repayment is a safety net for federal student loan Most borrowers don’t know about income-based repayment, an option that first became available in 2009 and is available to those whose total federal student loan debt exceeds their annual income. People who are falling behind with their payments often do not learn about this alternative repayment plan because they feel overwhelmed by debt and start to ignore correspondence and calls from creditors. Only 2.6% of borrowers use income-based repayment, even though three or four times as many borrowers could benefit. Most borrowers don’t know that the involuntary payments under wage garnishment are higher than the monthly payments under the income-based repayment.

Earlier and more frequent debt counseling and debt disclosures—before students borrow and at least once a year during their enrollment—would increase borrower awareness of the growth in their debt burdens, methods of minimizing debt, options for repaying the debt and the consequences of defaulting on these loans. Maybe if lenders or colleges or the U.S. Department of Education were to provide undergraduate students with periodic loan statements while they are enrolled, more borrowers would finish college faster and with less debt, and fewer students would default on their loans.

Families also need the tools and skills to interpret these disclosures. Financial literacy training, including budgeting, banking, borrowing and investing, should be incorporated into high school curriculum, and a financial literacy mini-course should be required during college orientation or during the first year of college. Not only will this help students make smarter borrowing and repayment decisions, but it will help them be more successful in life by teaching them how to manage their money more effectively.